​Kazakhstan's oil dreams

September 25 2015, 13:40

Just a few years ago, Kazakhstan had ambitious plans to join the world top ten oil-producing countries. However, it seems that these plans are destined to remain unfulfilled.

At present, oil production is not expected to be increased in the country. On the contrary, for several consecutive years, oil production has been slowly but steadily falling in Kazakhstan. So, production totaled 81.8 million metric tons of oil and gas condensate in 2013. Kazakhstan produced 80.826 million metric tons in 2014. According to the latest forecast, the oil production is planned to hit 80.5 million metric tons in 2015.

The fact is that most of oil fields being developed in Kazakhstan have been in operation for several decades and have reached their production peak. Only new fields can save the situation. But this has not been achieved yet. Great hopes were pinned on super giant Kashagan field in Kazakhstan. However, the beginning of Kashagan oil production, initially planned for 2005, was postponed several times because of the complicated structure of the deposit and miscalculations in the design. Finally, Kashagan was launched in September 2013. But in two weeks, the production was ceased because the pipes cracked at the field because of the high sulfur content in oil.

At present, the specialists developing Kashagan and Kazakhstan are still waiting. It is necessary to completely replace 200 kilometer-pipelines at the field to resume production. It was initially expected that the pipe replacement will take 2 years and production will be resumed at the end of 2015. However, according to the latest statements of Kazakh officials, oil production at Kashagan is being delayed again. Uzakbai Karabalin, the first Vice-Minister of Energy of Kazakhstan, recently reported that the work at Kashagan field is expected to be resumed in late 2016. However, such a forecast causes doubt among many analysts. For example, Standard & Poors agency expects the resumption of production at Kashagan field not earlier 2018.

Moreover, the current unfavorable situation on the oil market will greatly impact the oil production in Kazakhstan. The cost price of production at many fields of Kazakhstan is quite high. Vladimir Shkolnik, Kazakh Energy Minister, said in June that about 15 percent of Kazakhstan's deposits are profitable in case of oil price worth $60-65 per barrel. There are no official statements about the number of Kazakh unprofitable fields given the current oil price of less than $50.

However, it is clear that many Kazakh companies are currently working and hope that oil prices will rise because at current prices, oil production is unprofitable for them.

If the situation with oil prices is not relatively stabilized in the near future, many Kazakh deposits will have to be closed.

Kazakhstan will also have to abandon the plans for the development of new deposits. In particular, the resumption of production at Kashagan field will once again be postponed because of unprofitability, rather than technical reasons. Sauat Mynbayev, the chairman of board of Kazakhstan's national oil and gas company KazMunaiGas, said in February 2015 that the payback threshold in oil production at Kashagan field is around $100 per barrel, i.e. over twofold more than the current oil prices.

In case of the current low oil prices, one should not expect the discovery of new oil fields. Taking into account the economy adhered by most oil companies now, one must not wait for investments in exploration.

Thus, at current oil prices and in case of their further decline, oil production in Kazakhstan will significantly drop.

According to the forecast of the Kazakh Ministry of Energy for 2016, recently voiced by Karabalin, the production will hit 77 million metric tons in the country at an oil price of $40 per barrel, 79-80 million metric tons at a price of $ 50 and 73 million metric tons at $ 30 barrel.

It should be stressed that most analysts do not expect an increase in oil prices in the short and medium term.